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Think about your value proposition

09/05/11  8:00 AM 

This week has been one of discussions on value propositions. In the first we were working out what we were offering various stakeholders in returning for investing time, effort, and obvious commitment into supporting the development of 'living labs'. On this project we are planning intentional experimentation on the interactions between people and workspace. So, for example, if we invite people to work in open bench style workspace rather than the current individual high walled cubicles and they accept the invitation what impact does it have on things including their work practices, the work flow, and their productivity?

Clearly inviting people to work in a different space layout will incur various costs e.g. in new layouts, perhaps new furniture, risks to productivity and business continuity, etc. But there may be benefits - more collaboration resulting in higher customer satisfaction, higher productivity, swifter decision making because people are communicating more effectively and so on. But we don't know and this is the 'lab' part of the project. Thus the value proposition discussion.

But what exactly is a value proposition? There are many definitions. Alex Osterwalder defines it as "the bundles of products and services that satisfy our customer segments' needs", an alternative definition of working definition of his is "a customer value proposition gives an overall view of a company's bundle of products, services and client advice. It is the sum of the total benefits a customer is promised to receive in return for a payment (or other value transfer)"

Investopedia explains that it is a business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.

Our discussion on the value proposition around "living labs" centered on determining whether each stakeholder group i.e. customer segment needed a different value proposition. We rather thought it did. Because the value we are offering employees, for example, to give up their comfortable office or cubicle in return for an unknown is different from the value we are offering the leadership team in return for their support of the 'living labs'? It seemed easier to show the value to leaders in terms of savings on real estate, than to employees although for them we could 'exchange' personal office space for more telecommuting and flexible work arrangements.

The second discussion came at a conference session at the Association of Professional Design Firms (APDF) I was facilitating on "Why Business Models Matter." The questions on the topic were useful and challenging - for example: Can you have a hierarchy of value proposition? Can a value proposition be a value like 'trust'? Do value propositions change over time, and if so, why? How do you educate your customers about the value proposition you are offering if they don't know they want it? Can you have a 'great idea' and then convert it into a value proposition? What comes first - the customer segment or the value propositions?

You'll guess that this was a fairly lively 90 minutes as we all wrestled with these in the context of a business model. The background reading for the session was two articles. One, Groupon Anxiety, was clear about the tightrope Groupon is walking in relation to its value proposition. It is a company at the crossroads of live or die. There are now many copies and the value proposition Groupon offers is no different from the value proposition of its competitors, so it is struggling. As the article author points out:

"Yet amid all the excitement over the "world's fastest-growing company ever", as some have breathlessly described Groupon, words of caution can increasingly be heard. Even Andrew Mason, the firm's habitually cheerful boss, seems to harbour doubts. "By this time next year, we will either be on our way to becoming one of the great technology brands", he recently wrote in an internal memo, "or a cool idea by people who were out-executed and out-innovated by others." More fundamentally, the whole idea of "daily deals" may have serious flaws."

The other How to Design a Winning Business Model, Harvard Business Review, January-February, comments that:

"The ways by which companies create and capture value through their business models in undergoing radical transformation world wide ... seven out of 10 companies are engaging in business model innovation, and an incredible 98% are modifying their business models to some extent."

This article poses three questions to ask about your business model: Is it aligned with company goals. Is it self-reinforcing? Is it robust? Discussion on each of these questions touch on the choices and consequences make in relation to a value proposition. For example threats to robustness included 'substitution' a new product/service from a competitor could decrease the value customers perceive in your products/services. A recent example is of Flip video which, in April 2011 Cisco (who bought the company in 2009) closed down. Read the article NY Times article on this headed For Flip Video Camera, Four Years From Hot Start-Up to Obsolete. It makes the point that:

Just as the Flip was reaching its zenith, the smartphone was gaining traction among consumers. With its versatility in recording video and still images, as well as its ability to perform myriad other functions, the smartphone has since proved to be a far more desirable product than a single-function device like the Flip.

The outcome of these discussions? I'll continue recommending that managers/leaders regularly and intentionally review their business model and value proposition, and then adapt it to reflect the different customer segments changing perceptions of the value you offer them.

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